Evaluate each one of them and recommend the best one. A. Invest in acquiring a newly formed company worth $5million that has great technical assets. The company has not been fortunate to generate enough revenue to run its operations. B. Do not invest the money and use it to keep running the company’s operations.
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A pharmaceutical company has been able to generate a capital of $5 million from a
generous investor. The higher management wants to use the money wisely. The company is
looking forward to investing in acquiring patents that will cost around $3 million in the
coming year. There is a need to maintain $180,000 of working capital every month to keep
running its operations. Currently, the company can barely generate enough revenue to
meet its monthly expenses and suffers an occasional loss every two quarters.
Below are some of the options for using the capital. Evaluate each one of them and
recommend the best one.
A. Invest in acquiring a newly formed company worth $5million that has great technical
assets. The company has not been fortunate to generate enough revenue to run its
operations.
B. Do not invest the money and use it to keep running the company’s operations.
Step by step
Solved in 3 steps
- A pharmaceutical company has been able to generate a capital of $5 million from a generous investor. The higher management wants to use the money wisely. The company is looking forward to investing in acquiring patents that will cost around $3 million in the coming year. There is a need to maintain $180,000 of working capital every month to keep running its operations. Currently, the company can barely generate enough revenue to meet its monthly expenses and suffers an occasional loss every two quarters. Below are some of the options for using the capital. Evaluate each one of them and recommend the best one. Invest in acquiring a newly formed company worth $5million that has great technical assets. The company has not been fortunate to generate enough revenue to run its operations. Do not invest the money and use it to keep running the company’s operations.A pharmaceutical company has been able to generate a capital of $5 million from a generous investor. The higher management wants to use the money wisely. The company is looking forward to investing in acquiring patents that will cost around $3 million in the coming year. There is a need to maintain $180,000 of working capital every month to keep running its operations. Currently, the company can barely generate enough revenue to meet its monthly expenses and suffers an occasional loss every two quarters. Below are some of the options for using the capital. Evaluate each one of them and recommend the best one. 1. Invest in acquiring a newly formed company worth $5million that has great technical assets. The company has not been fortunate to generate enough revenue to run its operations.2. Do not invest the money and use it to keep running the company’s operations. (Please cite paragraph according to MLA citation) Please note this is not an essay question.eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $50,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $58,000 per year. The firm’s cost of capital (discount rate) is 11%. a.The firm is not yet profitable and therefore pays no income taxes. b.The firm is in the 26% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. c. The firm is in the 26% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 × 25%). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 1. What is the internal rate of return (IRR) of the proposed investment for…
- Affleck Inc.'s business is booming, and it needs to raise more capital. The company purchases supplies on terms of 1/10, net 20, and it currently takes the discount. One way of acquiring the needed funds would be to forgo the discount, and the firm's owner believes she could delay payment to 40 days without adverse effects. What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.)Moxabl Inc. plans to buy land and build an assembly line for its expansion. The anticipated total cost of the land and structures is $0.65 million. The founder-owners of the company are reluctant to borrow money and prefer to set aside savings from profits to cover the cost. Management believes that the firm can set aside $650,000 a month to accumulate the capital necessary for this investment. The firm can earn 8 percent compounded monthly on the funds it saves. How long will it take for the firm to have sufficient capital to invest in this expansion? Assume that the cost of expansion remains constant over time.Your firm is contemplating the purchase of a new $435,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 6-year life. It will be worth $54,000 at the end of that time. You will save $157,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $43,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 23 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR 25.73 %
- Your firm is contemplating the purchase of a new $530,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $75,000 at the end of that time. You will save $185,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $50,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 25 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Your firm is contemplating the purchase of a new $620,000 computer - based order entry system. The system will be depreciated straight - line to zero over its 5-year life. It will be worth $101,000 at the end of that time. You will save $194,000 before taxes per year in order processing costs, and you will be able to reduce working capital by S 116,000 (this is a one time reduction). If the tax rate is 24 percent, what is the IRR for this project?Your firm is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $39,000 at the end of that time. You will save $137,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $38,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 23 percent, what is the IRR for this project?
- Your firm is contemplating the purchase of a new $615,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $97,000 at the end of that time. You will save $192,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $112,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $81,000 at the end of that time. You will save $184,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $96,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR %Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $60,000 at the end of that time. You will save $176,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $80,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project?